RBC Capital Markets: Up to 1,000 Banks Could Shutter from 2008-2012

RBC Capital Markets has asserted in the past that up to 1,000 banks could fail during the 2008-2012 credit cycle, and they continue to hold to those numbers.

Most banks expected to fail should be under $3 billion in size, although that’s not surprising since many of the larger banks have survived so far from being propped up from taxpayers’ money.

During the last financial and banking crisis, the number of institutions closing was around 1,900 from 1989 to 1993.

As far as how the Deposit Insurance Fund is holding up, at the beginning of the quarter it had an estimated $13 billion left to cover bank defaults, or 0.27 percent of deposits that were insured. After closing another 24 banks in the last quarter, the FDIC was hit with an estimated $9.1 billion in costs.

Assessments and special assessments charges were collected at another estimated $6.2 billion during the quarter, possibly giving the money left in the fund under $4 billion. But because everything involves estimates, it’s highly likely that it’s far under that, or even maybe they’re already tapping into their credit line. Just under $4 billion would be the high end or best-case scenario.

A number of analysts also expect another special assessment to be applied to the banking industry in order shore up the depleted Deposit Insurance Fund, which would be payable by the end of the year.

The news out of the Federal Deposit Insurance Corp. board meeting is expected to push down bank stocks in the U.S., as second quarter results will give a more real picture rather than the irrational one which has caused investors to unwisely invest in the sector. Some believe it could be look upon as a buying opportunity, but there’s far too many unknowns at this time to trust in the idea of buying when the stocks go down.

Other important data which will give a more up-to-date and accurate picture will be presented in the latter part of September via the Shared National Credit Results report, where it is expected to reveal a large number of classified loans will have increased in a big way. Those are the types of loans which determine loan loss reserves.

The exam itself goes over all syndicated loans which bank members own, and determines their credit quality. That will also give us a better look at the type of re-set activity which we can expect over the short term, which should be substantial.